AIIB: What We Know So Far and Emerging Concerns from
The founding of the Asian Infrastructure Investment Bank (AIIB) is partly a result of the United States’ unwillingness to reform the Bretton Woods institutions. Since 2010, the US Senate has refused to ratify an agreement on governance reforms that would have doubled resources available to the International Monetary Fund (IMF) by increasing capital contributions from emerging market countries. This would proportionately expand their voting power on the IMF Executive Board – where current quotas treat France as though it were more economically dominant than China, and Belgium more dominant than Brazil.
What is AIIB?
“The Asian Infrastructure Investment Bank is a multilateral development bank (MDB) conceived for the 21st century. Through a participatory process, its founding members are developing its core philosophy, principles, policies, value system and operating platform. The Bank’s foundation is built on the lessons of experience of existing MDBs and the private sector. Its modus operandi will be lean, clean and green: with a small efficient management team and highly skilled staff; clean, an ethical organization with zero tolerance for corruption; and green, an institution built on respect for the environment. The AIIB will put in place strong policies on governance, accountability, financial, procurement and environmental and social frameworks.
The AIIB, a modern knowledge-based institution, will focus on the development of infrastructure and other productive sectors in Asia, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply and sanitation, environmental protection, urban development, and logistics, etc. The operational strategy and priority areas of engagement may be revised or further refined by its governing boards in the future as circumstances may warrant.
AIIB will complement and cooperate with the existing MDBs to jointly address the daunting infrastructure needs in Asia. The Bank’s openness and inclusiveness reflect its multilateral nature. AIIB welcomes all regional and non-regional countries, developing and developed countries, that seek to contribute to Asian infrastructure development and regional connectivity (emphasis supplied).”
AIIB MOU: Key Points
The Memorandum of Understanding (MOU) on Establishing the Asian Infrastructure Investment Bank specifies that the authorized capital of AIIB is $100 billion and the initial subscribed capital is expected to be around $50 billion, according to Chinese Finance Minister Lou Jiwei.
Lou said Prospective Founding Members have agreed that GDP will be the basic parameter in determining share allocation among member countries. Therefore, China will be the largest shareholder.
Previously, China announced that it is willing to subscribe up to 50 percent of the capital. This is an indication that China would like to provide strong support to AIIB, Lou said.
However, China will not seek to be “the single majority shareholder” and will not necessarily subscribe 50 percent of the capital. He said. “Moreover, China’ s share ratio will be gradually diluted with more members joining AIIB in the future.”
According to Finance Minister Lou, the governance structure of the Bank will consist of 3 levels: Board of Governors, Board of Directors and the Management, adding that all powers of the AIIB will be vested in the Board of Governors which may delegate to the Board of Directors and the Management its powers as stipulated in the Articles of Agreement (AoA) [ 24 October 2014.].
In the Forum’s recent lobby meetings with the ADB Board of Directors and as stated in AIIB’s description of the bank of keeping its operations ‘lean’, AIIB will have a board of directors that will not reside in Beijing as opposed to the practice in other MDBs. The likelihood of such a scenario poses the question of how will the board of directors carry out fully its duties particularly in reviewing and approving projects and other operations – related functions.